The rights plan is effective immediately and applies equally to all current and future shareholders in Southwest. A rights plan is a way to discourage a company’s takeover from an outside entity, often called a “poison pill,” in the finance world. This particular plan is triggered when a shareholder acquires a certain amount of its common stock, which would let all other shareholders buy stock at a discount.It expires in a year.
“In light of the potential for Elliott to significantly increase its position in Southwest Airlines, the board determined that adopting the Rights Plan is prudent to fulfill its fiduciary duties to all shareholders,” said Gary Kelly, executive chairman of the board. “Southwest Airlines has made a good faith effort to engage constructively with Elliott Investment Management since its initial investment and remains open to any ideas for lasting value creation.
According to a release Wednesday, Southwest’s board and advisers considered Elliott’s stake, the fact that it had not reported its full purported position in Southwest on any filing with the U.S. Securities and Exchange Commission and that Elliott has made regulatory filings with U.S. antitrust authorities that would provide it the flexibility to acquire a significantly greater percentage of Southwest Airlines’ voting power across two of its funds starting as early as July 11.
Under the plan, Southwest will issue one right for each share of common stock, which will initially trade with Southwest common stock and will become exercisable only if any person or group acquires 12.5% or more, a triggering percent to the plan, of the company’s outstanding common stock. If the rights become exercisable, all holders of rights will be entitled to acquire shares of common stock at a 50% discount to the then-current market price or the company may exchange each right held by such holders for one share of common stock, according to Southwest.